Smart Contracts: A Revolutionary Feature of Blockchain

Every so often, when new software or technology is released, a secondary feature ends up having a greater impact than developers intended. For example, Instant Messenger (IM), a feature of America Online, was enormously popular and helped usher in an era of instantaneous, text-based communication tools, like Apple’s iMessage. Similarly, the internet connectivity of the original Xbox revolutionized how console games are designed and played, emphasizing multi-player capabilities in new titles and shifting marketing tactics for the entire industry.

Now, although blockchain is still just becoming a recognizable term, it’s already changing how secure transactions are performed worldwide — and smart contracts, a secondary feature of blockchain, may ultimately have the greatest impact on our lives.

How Smart Contracts Are Currently Used

As companies like Walmart and Bank of America continue to explore how blockchain can simplify and secure their transactions, smart contracts are just beginning to make an impact. Take, for example, French insurance company AXA, who recently tested a product called Fizzy, which is intended to protect travelers against canceled flights. When a flight is delayed for a specific period of time or canceled altogether, a self-executing contract is triggered, issuing a refund.

Similarly, Storiqa, a startup that helps users set up online marketplaces with access to blockchain, is bringing smart contracts mainstream as well. By providing small enterprises with alternatives to popular online marketplaces and accepting cryptocurrencies, Storiqa has positioned itself to grow its user base explosively.

Future Implications of Smart Contracts

Smart contracts will continue to shape the freelance and sharing economies for years to come. For example, Airbnb has already partnered with RemoteLock — a company that produces smart locks that rely on smart contract technology — to provide this service for hosts. Once transaction fees for a property have been paid, a smart contract could automatically send a code to guests, allowing them to unlock the door at check-in time; the code would expire at check-out. No user input needed!

As another example, in the freelance economy, payment can be a slow process; sometimes, it takes freelancers weeks to receive payments even after work has been completed on a project. But with smart contracts, as soon as work is finished (and approved by contractors), payment could be processed much faster — even automatically.

Even in traditional industries like insurance, smart contracts may soon benefit customers. Filing an insurance claim is a lengthy, manual process that delays payment for customers. For instance, following a car accident, an adjuster needs to see the vehicle involved, assess the damage, file paperwork, process that paperwork against the holder’s policy, then finally mail a check that still needs to be deposited before a customer receives any money. But with smart contracts, policy checks could happen instantly following vehicle assessment — and if everything checks out, the payment would self-execute, resulting in a much more expedited process.

Roadblocks Ahead and How to Pass through Them

Of course, there are presently legal issues preventing smart contracts from being adopted widely: as of now, Arizona, Nevada, and Vermont are the only states that have clear legal precedents for smart contracts and the validity of the digital signatures they necessarily involve. Furthermore, in order for smart contracts to execute, all users need to be on the same block — an issue that has impacted P2P mobile payments in recent years, as new payment platforms were still being released. That said, Venmo has done a remarkable job unifying this space, going from $194 million worth of transactions in Q4 of 2013 to $5.6 billion in Q4 of 2016.

If unifying payment platforms has made P2P transactions simpler and easier, there’s no reason why the same can’t be done for smart contracts. It will take coordination among developers, companies, and perhaps even regulatory agencies (like state and federal governments) to get users onto the same block. But doing so will unlock many advantages for consumers and businesses alike.

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